What Drives Natural Gas Prices?

For many years, fuel switching between natural gas and residual fuel oil kept natural gas prices closely aligned with those for crude oil. More recently, however, the number of U.S. facilities able to switch between natural gas and residual fuel oil has declined, and over the past seven years, U.S....

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Bibliographic Details
Published in:The Energy journal (Cambridge, Mass.) Mass.), 2008-04, Vol.29 (2), p.45-60
Main Authors: Brown, Stephen P. A., Yücel, Mine K.
Format: Article
Language:English
Subjects:
Applied sciences
Crude oil
Crude oil prices
Economic data
Energy
Energy economics
Exact sciences and technology
Fossil fuels
Fossil fuels and derived products
Fuel oils
Gas
Gasoline prices
General, economic and professional studies
Henry hub
Industry forecasts
Liquefied natural gas
Market prices
Mathematical models
Methodology. Modelling
Natural gas
Natural gas prices
Natural gas production
Oil
Oil prices
Petroleum chemicals
Petroleum industry
Petroleum products
Prices and rates
Residual gas
Studies
Weather
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Summary:For many years, fuel switching between natural gas and residual fuel oil kept natural gas prices closely aligned with those for crude oil. More recently, however, the number of U.S. facilities able to switch between natural gas and residual fuel oil has declined, and over the past seven years, U.S. natural gas prices have been on an upward trend with crude oil prices but with considerable independent movement. Natural gas market analysts generally emphasize weather and inventories as drivers of natural gas prices. Using an error-correction model, we show that when these and other additional factors are taken into account, movements in crude oil prices have a prominent role in shaping natural gas prices. Our findings imply a continuum of prices at which natural gas and petroleum products are substitutes.
ISSN:0195-6574
1944-9089
DOI:10.5547/ISSN0195-6574-EJ-Vol29-No2-3